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Thoughts at a Workshop On Replacing CA’s Gas Tax With a Mileage Fee

In 2017, California plans to pilot a new mileage-based Road User Charge designed to potentially replace the current state gas tax. Photo Wikimedia
gas pump

Earlier this week, I attended a California Sustainable Transportation Funding Workshop, hosted by Caltrans, Southern California Association of Governments (SCAG), the California Transportation Commission (CTC), and the Mileage-Based User Fee Alliance (MBUFA). The half-day program focused on how the state of California could shift from our current gas tax funding stream to one based on a per-mile fee.

Let me first say that I usually mostly hang out with a bunch of left-of-center city people like me; we get around mostly by bicycling and walking. My friends and colleagues tend to support the idea of a per-mile fee, because we expect that it could help motivate people to drive less, and use other modes more.

This workshop wasn't populated by a bunch of people like me. I don't think anyone else arrived there by bicycle. As far as I could tell, it was primarily people who are more mainstream: people who drive and who, for the foreseeable future, expect our car-centric transportation system to look more or less like it does now. Among the program's sponsors was the libertarian Reason Foundation.

What was interesting about the workshop was where the left and the right agreed: gas tax revenues aren't enough to cover transportation infrastructure costs, and per-mile fees could work better. Similar right-left agreements occur with some Shoup-inspired parking reforms and Express Lane toll programs.

California's Gas Tax
In 1994, California's Gas Tax was set at 18 cents per gallon. It remains unchanged today, but, due to inflation, that 18 cents is now worth about 11 cents. Graph via Caltrans
California's Gas Tax

Speakers at the conference set the stage by describing the situation, which they described as "The Federal & California Financial Cliff." The federal gas tax is 18.4 cents per gallon. The California gas tax is an additional 18 cents per gallon. These amounts were set in the early 1990s. Unlike percentage-based sales taxes, which fluctuate with price changes, the gas tax remains at a flat rate. Since the '90s, inflation has effectively reduced California's gas tax to its lowest inflation-adjusted level since California gas taxes began in 1923.

Gas taxes are dedicated to be spent on transportation only. As the gas taxes lose value over time, governmental transportation budgets are increasingly subsidized by other taxes paid by everyone, including sales taxes, property taxes, etc. Recent estimates show that only about half of overall transportation funding is paid for by dedicated gas tax revenues. To some extent, this is fair: even non-drivers derive some benefits from highways, because everyone buys goods shipped by truck. The unfair aspect of this system is that non-drivers' taxes go, in part, to freeways that non-drivers do not use.

Transportation leaders are generally aware that general funds subsidize transportation expenditures, but many drivers assume that driving-based taxes are what pays for roads. Many drivers, though already subsidized by non-drivers, still think they're paying too much.

There are at least three more factors that influence the gas-tax-income vs. transportation-expenditures mismatch. 

Gas tax revenue fails to keep pace with vehicle miles traveled. Caltrans' chart illustrates that link well, but ignores recent trends in declining VMT. Graph via Caltrans
Clearly the problem is fuel-efficient vehicles.

One factor was what conference presenters called the "problem" of increasing fuel efficiency. Due to legislative mandates and market forces, cars get more miles per gallon today than before. Fuel efficiency is good for drivers' wallets and reduces the harm that driving does to the environment, but it means people pay less in gas taxes. At the workshop, CTC Vice Chair Lucy Dunn criticized hybrid and electric vehicle drivers for not paying their fair share and burdening taxpayers.

Here are two more exacerbating factors that were not mentioned at the workshop:

    • Nobody mentioned recent declines in vehicle miles traveled (VMT.) The Reason Foundation's Adrian Moore actually promoted mileage-based fees in part because they will "grow along with VMT." Nationally and in California, per-person VMT has declined since 2004. This is throwing off traffic predictions, resulting in even less gas tax revenue than agencies anticipated. It has resulted in declining toll revenues and toll authority bankruptcy.
    • As Chuck Marohn at Strong Towns has emphasized, transportation infrastructure maintenance costs are gradually increasing. It seemed like a good investment for states and cities to build all kinds of big highways and roads with "free" federal monies. But, as infrastructure ages, maintenance costs come due.

So, as costs grow and dedicated income shrinks, the need for other revenue increases. This can mean drawn-out political battles. With limited government dollars, Mr. and Ms. Public, what would you rather fund: More roads? More police? More education? More parks?

Transportation agencies enjoyed more than half a century of relatively flush and entirely dedicated budgets. Now they're facing competition, with shifting political winds often meaning leaner budgets. This uncertainty makes planning and financing more difficult, and destabilizes not only agencies, but also the private industries that count on governmental contracts.

What's in the future? The folks assembled at the workshop, and many others, think it is Mileage Based User Fees (MBUFs.)

MBUF is also called VMT fee, VMT tax, or a per-mile charge. 

Generally, this would work by charging drivers some amount of money for every mile they drive. In the initial switch-over from gas taxes, this could be done in a revenue-neutral way. As of July 2015, Oregon will start a permanent program wherein some drivers will voluntarily switch from paying the state gas tax to paying a 1.5 cents per-mile charge. This amount corresponds to Oregon's average gas tax per mile driven.

Being revenue-neutral, this would not, on its own, solve the budgetary shortfall. It could, perhaps, stop the hemorrhaging - meaning that mileage fee revenues would not decline quite as dramatically as the gas tax revenue has been declining. Mileage fees bring fuel-efficient vehicles back into full-paying mode. To fully stop the hemorrhaging, though, the new MBUF would need to be indexed to inflation, in which case it would only be revenue-neutral on day one.

California is moving forward with a per-mile fee pilot. The legislature and governor recently approved S.B. 1077, which authorizes a "Road User Charge" program as an alternative to California's gas tax. Caltrans and the California Transportation Commission are currently assembling a technical committee to direct the implementation process. The pilot program is scheduled to begin operation in January 2017.

Will a mileage fee make a big difference?

Many of the workshop speakers, who seem invested in retaining current car-centric systems, seem convinced that MBUFs are key to continuing the status quo.

Many of my livability-seeking friends think MBUFs would help a shift toward livability.

The truth is likely in the middle somewhere, and the devils will be in the details. It is also possible that any effects MBUFs cause could be overwhelmed by other forces. Mileage fees could be outweighed by increasing gas prices, declining VMT, millennials' behavior, technological advances, mode shift trends, global warming, or other unforeseen circumstances.

Though workshop speakers seemed very confident that MBUFs will take hold in California and will someday replace our broken gas tax, the future of MBUFs past the 2017 pilot is unclear.

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